Loan woes

Japan, Inc., Feb, 2004

LATE LAST YEAR, the sudden arrest of Yasuo Takei, the former chairman of Japan's leading consumer credit group and one of Japan's wealthiest men, opened a major can of worms. The details of his alleged telephone-tapping scandal are bad enough--as is the very strong probability that his company, Takefuji, may cave in as a result of losing its figurehead and founder. Police raided 40 locations, including Takei's opulent Tokyo residence and company headquarters, in their search for evidence. He is being held on suspicion of ordering staff to bug the telephone of a freelance journalist who had compiled a series of highly critical articles about his company.

Word of the iconic chairman's arrest in early December sent shares in Takefuji, the hugely profitable company that 73-year old Takei founded in 1968 and rules with an iron fist, plunging by its daily limit. Brokers began warning clients that if the chairman were to be convicted, the company could lose its loan license and collapse.

The sharp drop was a particular blow to Takefuji's many British and US investors. Since the group's listing in 1996, most of them confidently held onto their shares in what has until now been a lucrative bet on Japan's surging consumer loan boom. Around a quarter of the [yen]4.3 trillion of loans currently held by Japanese individuals are non-collateralized and originate from companies like Takefuji and its main rivals, Aifuru, Acom and Promise. Stretching the limits of the law, interest rates of around 20 percent and often heavy-handed debt collection methods by many loan companies have turned the phrase "debtor's hell" into a Japanese buzzword.

A company spokesman described the sudden arrest as being like a "thunderbolt from a clear sky." The company suspended its notoriously steamy TV advertising campaign, which for years has involved a scantily-clad troupe called the "Takefuji Dancers."

Takei is credited with many innovations that have made the consumer loan industry in Japan so profitable. But he is also no stranger to criticism and allegations of scandal. Even listed loan companies are regularly accused of being too closely attached to the mob--and of cultivating inappropriately close relations with the police.

--The Editors